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Canadian Market Recap: Week Ended April 21

Forty-seven Canadian M&A transactions closed this past week. Year to date, M&A closed deal count is 12.8% higher than the comparable period in 2016. The Canadian dollar depreciated by 1.11 cents, ending the week at 74 cents. The TSX was up by 0.5%, but underperformed the S&P 500 by 2.2% in U.S. dollar terms.

The new issue environment for U.S. middle market loans became slightly less favourable, as average total leverage fell to 4.7x EBITDA, with yields falling as well. New issue clearing yields were 0.31% lower than last year’s levels. CLO issuance is on track to meet or exceed 2017 expectations, with one third of respondents in a Thomsom Reuters LPC survey indicating total issuance could surpass US$70 billion. Challenges remain, however, including a lack of new issue supply and complying with risk retention rules.

I recently attended a seminar at Torys, one of Canada’s leading law firms. The room was packed with men and women in blue suits (actually, mostly men). Bankers from the big five were at nearby tables. And the focus of the seminar was…Recreational Cannabis.

With the release of the draft Cannabis Act on April 13, opportunities in the sector are scaling and with them, support from top tier Canadian law firms like Torys and Blakes (who will be holding their own Cannabis Round Table on May 2). I want to share some of the insights that I gleaned from the Torys seminar – insights that are not apparent on a straightforward reading of the draft legislation.

The regulatory expert on the panel, Eileen McMahon, expressed full confidence that the federal government would meet the target rollout date of July 1, 2018. Once federal legislation is passed, producers currently licensed to grow medical cannabis will be permitted to sell cannabis for recreational purposes. They will be joined by newly licensed producers that have successfully navigated the application pipeline[1].

McMahon emphasized that government will heavily regulate the entire supply chain, so that companies with experience operating in a regulated environment will have an advantage. This is relevant when considering prospective industry consolidators. We see big tobacco, alcohol and pharma as likely contenders, and it is the pharmaceutical companies that lead in their experience with regulatory compliance and drug testing.

Cheryl Reicin, group leader to Torys’ life sciences practice, outlined trends and issues likely to emerge in the sector. She noted that Canada is positioned to lead in financings for Canadian and international producers[2]. She also predicted that international players will look to Canada’s burgeoning expertise, and will leverage Canada’s legal infrastructure for research and operational purposes.

We’ve previously remarked on the number of cannabis sector deals featured in our weekly deal summaries, and Reicin expects to see heightened merger and acquisition activity driven by cost and product quality factors including:

1. Increased proximity to different markets to reduce transportation costs; and

The Torys panel included Dr. Catherine Zahn, the head of the Centre for Addiction and Mental Health, and a member of the Task Force on Cannabis Legalization. When asked directly whether she, as a clinician and task force member, endorsed the draft legislation, her answer was an unqualified yes. In her opinion as a leading addiction expert, the proposed legalization of recreational cannabis is well balanced by strict regulation targeted at protecting public health and restricting access to young people.

To quote Cheryl Reicin on the business of cannabis:

“We’ve come a long way baby, and I’m not talking about Virginia Slims.”

Energy (Announced)

Parkland Fuel to Acquire Chevron Canada

Parkland Fuel Corporation (TSX:PKI), a Canadian distributor of fuels and petroleum products in Canada and United States, has agreed to acquire Chevron Canada R&M ULC, a Canadian company that provides downstream fuel refining services. Total transaction value is estimated to be $1.6 billion.

Energy (Closed)

McIntosh Perry Consulting Engineers Acquires OEL Projects

McIntosh Perry Consulting Engineers Ltd., a Canadian engineering services consulting company, has acquired OEL Projects Limited, a Canadian company that provides engineering, procurement, and construction management services, primarily to the oil and gas industry. No transaction terms were released.

Materials (Closed)

Source Energy Services Acquires Sand Products Wisconsin

Source Energy Services Ltd. (TSX:SHLE), a Canadian company that produces, supplies, and distributes Northern White frac sand primarily to the Western Canadian Sedimentary Basin, has acquired Sand Products Wisconsin LLC, an American sand mining company. Total transaction value is estimated to be $60.2 million.

Con Cast Pipe Acquires Hy-Grade Precast Concrete

Con Cast Pipe, LP, a Canadian company that manufactures and supplies precast concrete products to the sewer and water main industry and municipalities in Canada, has acquired Hy-Grade Precast Concrete Ltd., a Canadian company that manufactures concrete products. No transaction terms were released.

Industrials (Closed)

MAG Aerospace Acquires Discovery Air Fire Services

MAG Aerospace Corp., an American company that provides airborne intelligence, surveillance, and reconnaissance services for federal, commercial, and law enforcement customers around the world, has acquired Discovery Air Fire Services Inc., a Canadian company that provides forest fire detection, aerial infrared detection, birddog, and aerial transportation services for the Ontario Ministry of Natural Resources. No transaction terms were released.

Hatch Acquires Chester Engineers

Hatch Ltd., a Canadian company that provides business and technical solutions to mining, energy, and infrastructure sectors in Canada and internationally, has acquired Chester Engineers, Inc., an American company that provides engineering and scientific research services that include water, wastewater, and environmental solutions to public and industrial clients globally. No transaction terms were released.

Consumer Discretionary (Announced)

The Carlyle Group to Acquire Twin Set - Simona Barbieri.

The Carlyle Group LP (Nasdaq:CG), an American investment firm that specializes in direct and fund of fund investments, has agreed to acquire Twin Set - Simona Barbieri S.p.A., a The Carlyle Group LP backed company that manufactures and sells women’s apparel. No transaction terms were released.

Accenture plc (NYSE:ACN), an American company that provides consulting, technology, and outsourcing services worldwide, has acquired Kunstmaan NV, a Belgian company that provides branding and communication related services. No transaction terms were released.

Richelieu Hardware Acquires Weston Premium Woods

Richelieu Hardware Ltd. (TSX:RCH), a Canadian company that imports, distributes, and manufactures specialty hardware and related products in Canada and the United States, has acquired Weston Premium Woods Inc., a Canadian company that engages in the distribution of lumber products. No transaction terms were released.

Altera Development Acquires Delta Hotels

Altera Development Company LLC, an American real estate development company, has acquired Delta Hotels Limited, a Canadian company that operates and manages hotels. No transaction terms were released.

Consumer Staples (Announced)

Fonds de solidarité FTQ to Acquire Chocmod Canada

Fonds de solidarité FTQ, a Canadian venture capital firm, has agreed to acquire Chocmod Canada Inc., a Canadian chocolate producer. No transaction terms were released.

Healthcare (Announced)

Sun Life Financial to Acquire The Premier Dental Group

Sun Life Financial Inc. (TSX:SLF), a Canadian insurance company that provides protection and wealth products and services to individuals, businesses, and institutions worldwide, has agreed to acquire The Premier Dental Group, Inc., an American company that provides dentistry services. No transaction terms were released.

Financials (Announced)

Accend Capital to Acquire Block 103 Iron-Ore

Accend Capital Corporation (TSX Venture:ADP.H), a Canadian investment firm, has agreed to acquire Block 103 iron ore property from ML Gold Corp, a Canadian company that engages in the exploration and development of mines in Canada and the United States. No transaction terms were released.

Information Technology (Announced)

ZPLAY to Acquire Noodlecake Studios

ZPLAY Information Technology LLC, a Chinese company that focuses on mobile game development and publishing, has agreed to acquire Noodlecake Studios Inc., a Canadian developer of mobile games. Total transaction value is estimated to be $5.6 million.

Information Technology (Closed)

IMAGINiT Technologies Acquires Advanced Technology Solutions

IMAGINiT Technologies Inc., a Canadian company that provides Autodesk design and engineering software solutions, has acquired Advanced Technology Solutions, Inc., an American technology consulting company that provides services to Fortune 500 companies in the United States. No transaction terms were released.

Syntax Systems Acquires Core Services

Syntax Systems Ltd., a Canadian company that develops and implements enterprise resource planning (ERP) solutions and other technology solutions to businesses in North America, has acquired Core Services Corporation, an American company that provides hosting, cloud, and consulting services to implement, develop, and support Oracle applications for clients worldwide. No transaction terms were released.

ReachLocal Acquires SweetiQ Analytics

ReachLocal, Inc., an American company that provides a suite of online marketing and reporting solutions to small and medium-sized businesses, has acquired SweetiQ Analytics Corp., a Canadian company that provides local search marketing solutions that help Fortune 500 brands convert online searches to in-store shoppers. No transaction terms were released.

Nimonik Acquires Envitool

Nimonik inc., a Canadian company that develops web and mobile solutions for environment, health, safety, and quality managers, has acquired Envitool (Shanghai) Management Consulting Co. Ltd., a Chinese company that offers an online legal directory with content on international conventions, national laws, and local regulations and standards. No transaction terms were released.

Gary Jonas Computing Acquires Innovative Computer Solutions

Gary Jonas Computing Ltd., a Canadian company that designs and develops enterprise management software for various industries, has acquired Innovative Computer Solutions, Inc., an American company that develops software solutions for beer, liquor and wine retail market. No transaction terms were released.

Rakuten Kobo Acquires BitLit Media

Rakuten Kobo Inc., a Canadian online eBook retailer, has acquired BitLit Media Inc., a Canadian company that provides a mobile application which helps users to get an eBook of a print book they own. No transaction terms were released.

Other (Closed)

Identification Multi Solutions Acquires Bertek Systems

Identification Multi Solutions Inc, a Canadian print solutions provider, has acquired Bertek Systems Incorporated, an American company that specializes in production of plastic cards, custom labels and promotional print. No transaction terms were released.

Uniban Canada Acquires Go! Glass & Accessories

Uniban Canada, a Canadian glass distributor, has acquired Go! Glass & Accessories, which offers automotive glass repair and replacement, and accessories. Go! Glass & Accessories will operate as a subsidiary of Uniban Canada. No transaction terms were released.

National Bank of Canada Acquires ONGO

National Bank of Canada (TSX:NA), a Canadian company that provides various financial products and services to retail, commercial, corporate, and institutional clients in Canada, the United States, Europe, and internationally, has acquired ONGO, a Myanmar company that specializes in mobile payments solutions. No transaction terms were released.

Algoma Central Acquires NovaAlgoma Short-Sea Holding

Algoma Central Corporation (TSX:ALC), a Canadian company that owns and operates a fleet of dry and liquid bulk carriers on the Great Lakes - St. Lawrence Waterway in Canada, has acquired NovaAlgoma Short-Sea Holding Limited, which will operate as a subsidiary of Algoma Central Corporation. No transaction terms were released.

Palm Holdings Acquires Holiday Inn Orlando SW - Celebration Area

Palm Holdings Group, a U.K. holding company operating through its subsidiaries, Palm Hospitality, Marigold Hospitality, and Europoint Holdings Limited, has acquired Holiday Inn Orlando SW - Celebration Area, an American company that will operate as a subsidiary of Palm Holdings Group. No transaction terms were released.

[2] Excluding U.S. players. There is a money laundering issue pervasive amongst U.S. cannabis producers. Accordingly, no U.S. cannabis companies are listed on the Toronto Stock Exchange or the TSX Venture Exchange.